Is it the same to invest in health care or social care? A health production function study

Abstract

Abstract Background This study aims to explore the relationship between health expenditure and social expenditure in their role in affecting health outcomes, such as death rates and disability-adjusted life years. Both types of spending may behave as complementary or supplementary goods, besides, they may interact with each other over time. Methods We used a translog production function using both health and social expenditures as inputs, for a panel of 27 years and EU countries, in order to estimate their respective output elasticities and the elasticity of substitution between them. Instrumental variables and ridge regressions were used to estimate unbiased elasticities. Results Our results point out that the elasticity of substitution between social and health expenditures is positive and less than one, which means that these spending variables may be classified as weak substitutes. Still, the substitutability pattern is heterogeneous according to each country, year and health outcome, being most sensitive to mortality rates in comparison with disability-adjusted life years. Conclusions Our Results support the hypothesis of a weak substitution relation between health and social expenditure. This implies that investments in the health sector should not be independent of social sector investments. Thus, policymakers need to consider the joint effect of these two spending categories when considering investment decisions aiming at achieving specific health gains. This presentation was supported by National Funds through FCT - Fundação para a Ciência e a Tecnologia,I.P., within CINTESIS, R&D Unit (reference UIDB/4255/2020) Key messages • As health and social expenditures behave as weak substitutes, they have a complex relationship that depends on time, technology and the type of health benefit. • Both types of spending may affect health outcomes, still, their effect is heterogenous and may be cummulative with time.